By Nancy Cook
March 20, 2012
If a budget is a political document, then House Budget Chairman Paul Ryan, R-Wis., laid down his marker Tuesday to show how little he likes the size and scope of federal government: a dramatic and perhaps unwise stance in a close election year.
Ryan’s budget proposal, released Tuesday morning, would hand more control of Medicaid and food stamps to the states by block granting the programs. He would repeal healthcare reform, which he calls in his budget part of a “growing and pernicious trend of government outreach into the economy,” and he would get rid of yet-to-be-determined government programs and agencies that he views as wasteful. In his budget last year, he offered more specifics about government programs he dislikes: everything from environmental protection to financial regulation.
You can practically see the Democratic opposition ads unfolding now, showcasing the way Ryan’s plan would drastically cut government spending while keeping the Defense Department’s budget in tact.
Most importantly, this budget tests Ryan’s reputation as a fiscal hawk, especially his tax plan. The latter would reduce the individual tax rates (which make up the majority of government revenue) to two brackets of 10 percent and 25 percent, while lowering the corporate tax rate to 25 percent. The Joint Committee on Taxation released a report last October saying it would hard to reduce the corporate tax rate to anything lower than 28 percent without losing money.
To pay for these tax cuts, Ryan’s budget says it would close tax loopholes: a political dodge both parties lean on heavily when talking taxes. But, for an economic nerd like Ryan, the dodge does not come across well. Which loopholes? Would it be the wildly popular mortgage interest deduction that encourages millions of Americans to buy homes, or the tax break that goes to employers that offer healthcare? And, which segment of the population would bear the brunt of the elimination of certain tax breaks: the middle class, the poor, or the wealthy?
Those answers may become clearer as Ryan makes the sales pitch for his budget throughout the week, appearing on various television programs and at two conservative think tanks.
Still, other questions remain, like the way Ryan assumes he can reduce the deficit so quickly as well as his assumptions for economic growth. According to his plan, Ryan will reduce the federal deficit to $800 billion in fiscal year 2013, a huge drop from the CBO’s latest projection that puts the deficit at $1.2 trillion. How can Ryan cut the deficit in one year by $400 billion if he plans to keep defense spending as is and propose huge tax cuts?
Secondly, his plan relies heavily on the idea that lower tax rates, little regulation, and smaller entitlement programs will jolt the economy alive again, shocking it into action. The tables at the end of his budget illustrate this best when they show revenue rising by billions of dollars throughout 2022.
“We reject calls to raise taxes, but revenue nevertheless remains steady under our budget because we close special-interest loopholes,” he writes in a Wall Street Journal op-ed. “More important, our reforms will grow the economy—and the faster the economy grows, the more revenue the government will have to meet its priorities and start paying down the debt.”
Yet, Ryan is also clear in his budget that he wants the CBO to change to way it measures government policy and that stinks of budget gimmickry, a charge he often levels at Democrats. It would be incredibly difficult to increase revenue and reduce the deficit in such a short period of time, alongside Ryan’s other plans—even with huge cuts to government spending.
Ryan opens his budget with a narrative and chart that maps out what he calls the contrasting vision between his agenda and President Obama’s. Ryan certainly has laid out an ideal for the Republicans, even if it contains gaps.
The question now is: Will the Republicans follow him as the party seeks to take over the White House and Congress, or will his budget proposal and its ideas expose fissures within the GOP?
By Nancy Cook
March 20, 2012